Some Cry Foul Over Relief Plan For Borrowers
By SUDEEP REDDY, DOUGLAS BELKIN and JONATHAN KARP
The Bush administration’s plan to give subprime borrowers a break on their mortgages is already catching flak from an unexpected source: other homeowners.
Treasury Secretary Henry Paulson, at a housing conference yesterday, said he is “aggressively pursuing” an agreement with lenders and investor groups to freeze rates on subprime adjustable-rate mortgages at their original levels. The proposal, aimed at helping homeowners who would fall behind in their payments at higher rates, is designed to prevent a surge in foreclosures next year. About 1.5 million subprime adjustable-rate mortgages are scheduled to reset to higher rates in 2008.
But as outlines of the plan become known, some homeowners are complaining that the effort isn’t fair to borrowers who didn’t overextend themselves. Others argue that the government shouldn’t be involved in perpetuating a housing bubble that needs to deflate. A key question: How far should you go to help borrowers who can’t pay their bills?
“People have to be responsible for their own actions,” says Harry Lancz, a small-business owner in Traverse City, Mich. He holds a pair of fixed-rate mortgages, one for his primary residence, which has been for sale for six months, and one for a second home in Louisiana. “What are you going to do when their credit cards get due and they can’t pay? Are you going to bail them out on that, too?”
Like many homeowners, Mr. Lancz, 57, is skeptical that the plan will actually lessen the impact of the housing crisis. “Unless you give them the money, this is just postponing the inevitable,” he says. “The more the government steps in, the more things get into a deeper quagmire.”
Even some subprime borrowers object to the plan. Justin Miller, a 27-year-old mortgage broker in Coral Springs, Fla., says he made a bad investment decision when he bought a $600,000 oceanfront home last December with two subprime loans. But he’s committed to making the $6,000 in monthly payments — and the higher payments once the rates go up.
“A lot of people are trying to point fingers and get themselves out of something they put themselves into,” he says. “I put myself in this position. I need to find a way to make it work.”
Mr. Miller says that the rate-freeze proposal reminds him of a television commercial: The announcer asks, “Do you owe back taxes?” A client responds, “I settled for half of what I owe.” Says Mr. Miller: “How’s that fair? Everything seems to be backward.” (more…)
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With all the foreclosures being PREDICTED next year, there is no way the government is going to come up with enough money to bail out every individual who stuck in a loan they are now unable to pay for (the last figure I saw was somewhere in the 900k’s). The government’s rescue attempt in this issue will be just as ineffective as the toy soldiers pictured above. I like Kathleen Pender of the San Francisco Choronicle’s take on the issue:
Dumb: Buying a house you can’t afford with no down payment and a loan whose monthly payments will explode in a few years.
Dumber: Lending money to people who can’t afford a traditional mortgage, especially when they have lousy credit ratings and don’t substantiate their income.
Dumbest: Bailing out dumb and dumber, especially with taxpayer money.
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